Nonlinear effect of female board directorship on bank financial soundness

  • Received April 2, 2021;
    Accepted October 18, 2021;
    Published October 26, 2021
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  • Article Info
    Volume 16 2021 , Issue #4, pp. 22-33
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    1 articles

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To verify if female directors on the bank’s board play a role in managing bank stability, this paper applies a multi-threshold model to quarterly data from 26 Taiwanese commercial banks over the 2002–2018 period to find the factors that influence bank financial stability and to examine how female board directorship affects it. The empirical results suggest that women on the board do play a guarding role in a bank’s financial soundness when banks reach a high debt ratio regime. The influence of female directors on the capital adequacy ratio is positive for banks with a debt ratio higher than 92.69%, and for non-performing loans it is positive within the regime of the debt ratio 90.71% ≤ τ < 95.39%.
In particular, it has been found that the value of total assets is a factor that positively affects a bank’s financial soundness, which supports the “too big to fail” theory for banks with high total assets and debt ratios. Revenue has the opposite effect on financial soundness when it negatively affects the capital adequacy ratio and positively affects non-performing loans. A larger board size reduces banks’ financial soundness, which is contrary to the higher proportion of women on the board of directors, which generally contributes to the financial stability of the bank.

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    • Figure 1. The nearest neighbor fit of BI vs. CAR, BI vs. NPL, and BI vs. DBT
    • Figure 2. Diagnostic test for model stability
    • Figure 3. Nonlinear vs. linear relationship between BI and CAR, BI and NPL within debt ratio regimes
    • Table 1. Variable definition
    • Table 2. Summary statistics
    • Table 3. The linear effect of board gender diversity on a bank’s financial soundness
    • Table 4. Test for unknown thresholds of the debt ratio (DBT)
    • Table 5. Nonlinear effects on the capital adequacy ratio (CAR)
    • Table 6. Nonlinear effects on non-performing loans (NPL)
    • Conceptualization
      T. Thanh Binh Nguyen
    • Data curation
      T. Thanh Binh Nguyen
    • Formal Analysis
      T. Thanh Binh Nguyen
    • Methodology
      T. Thanh Binh Nguyen
    • Software
      T. Thanh Binh Nguyen
    • Writing – original draft
      T. Thanh Binh Nguyen
    • Writing – review & editing
      T. Thanh Binh Nguyen